Public Option Alternatives

The public option has had a difficult time making its way through Senate Finance Committee mark-up sessions.  In the past week, two separate proposals for including a public option in health care reform were nixed.  Rejection of the plans, one proposed by Senator Charles Schumer of New York and the other by Senator John Rockefeller of West Virginia, is said to be indicative of a further adoption of the middle-of-the-road approach.  Still, some are optimistic that because Obama has the de facto final say on health reform legislation, he will work hard to include a public option; others debate whether the President is willing to compromise the public option for overall reform.

Instead of approving of Schumer’s or Rockefeller’s proposals, the Senate Finance Committee voted to include a proposal by Senator Maria Cantwell of Washington.  Cantwell’s amendment is said to be a compromise between Democrats and Republicans on the public option.  The plan, which would be federally-funded, would be available to those individuals who earn too much to qualify for Medicaid but are below 200% of the federal poverty level.  At present, an implementation cost analysis for the plan is still unavailable, but Cantwell says that the plan, which also give states the power to negotiate down the price of insurance, would be able to cover 75% of the uninsured population.  The plan would mirror the current health care system of Washington State.

Though many important Committee members like Sen. Baucus have approved of such an amendment, others like Senator Olympia Snowe of Maine have voted against it.  Keep in mind, Snowe has been labeled “the key to health reform.”  For Snowe, a public option would only be provided in states in which 95% of the population is deemed to not have access to “affordable” insurance through an Insurance Exchange.  Senator Tom Carper of Delaware has proposed a similar plan; however, his version leaves it up to the states to decide what it deems best for its constituents.  Under Carper’s version, states would get to choose between opening up state-funded health care plans for government employees to all residents, or creating a health insurance provider or a co-op to compete with private insurance companies.

The proposals of Carper, Cantwell & Snowe have their respective positives and negatives and are subject to, and seemingly born of, the political process. They smack of compromise.

What will it take to get any one of these proposed bills passed during the full Senate vote? The ongoing divide between liberals and conservatives on the issue of providing a public competitor to private insurance companies has created a fissure which has echoed through the common landscape now for months. But we are getting close– as the NY Times  put it– “tantalizingly close,” to sweeping Health Reform.  Floor debate will ensue shortly. Predictions abound. But in the words of Lamar Alexander, the number 3 Republican in the Senate, “There is nothing predictable about the Senate floor.”

Compromise. President Lyndon B. Johnson, key to passage of both Medicare and the Civil Rights Act famously declared: “I’m a compromiser and a maneuverer. I try to get ’something.’ That’s the way our system works.” As evidenced by the two aformentioned Johnson successes, however, Johnson also knew when to expend enough political capital to make that ’something’ meaningful. I would suggest we stand at the precipice of one of those times.

Timothy Noah’s Guide to Following the Health Reform Debate

Noah has been doing some great articles on health reform, and here is his selection of “must-read” sources. Noah boils down the latest Senate Finance Committee Bill as follows:

It appears designed to achieve two contradictory goals: to lower the bill’s cost and to reassure the insurance lobby. These are achieved at the expense of extending and improving Americans’ access to health care, which some might say is the whole point of passing a reform bill. . . .

In the July 2 New York Review of Books, Arnold Relman writes, “Things will have to get still worse before major reform becomes politically possible. The legislation likely to emerge from this Congress will not control—and will probably even exacerbate—the inflation of costs.” When I read these words earlier this week, I thought Relman, who’s been advocating major health reform for decades, was writing off current efforts too hastily. Now I’m not so sure.

The past week was a very difficult one for real health care reform. It will take some real jawboning to get reform worth having back on track.

Grassley and Baucus Seek to Further Define the Difference Between Charity Care and Bad Debt for Nonprofit Hospitals. As a Matter of Collections Timing?

Senate Finance Committee Chairman Max Baucus, left, and Ranking Member Chuck Grassley, right

According to Inside ARM, an accounts receivable management online magazine, the Senate Finance Committee is presently contemplating imposing strictures upon nonprofit hospitals regarding when those hospitals may outsource the collection of unpaid bills and, presumably, the definition of “bad debt” as it relates to “community benefit.” Inside ARM states that “The proposal is meant to provide more free care and make not-for-profit hospitals more accountable for their tax-exempt status.”

Details of the initiative are said to be scant at this point, but according to Inside ARM, “Committee Chairman Max Baucus of Montana and Chuck Grassley of Iowa, the committee’s top ranking Republican, propose requiring not-for-profit hospitals to follow certain procedures before initiating collection actions against patients.” Sen. Grassley has sought to require nonprofit hospitals to justify their tax exemptions since 2005, the year in which he sent what pretty much amounts to interrogatories to the nation’s leading nonprofit hospitals regarding billing practices and questionable characterizations of “community benefit.”

Although without detail, the new timing distinction for collections seems to be based upon the amount owed being designated as “bad debt,” or that which is essentially deemed “uncollectable.” The prospective prohibition would seem to  require the amount owed to be deemed “uncollectable” or “bad debt” before it can be placed with a collection agency. A prospect the nation’s collectors, who generally work on commission, do not relish. But one hopes this provision is but one small piece of further defining “community benefit” in terms of actual charitable care.

Many nonprofit hospitals have characterized their uncollected receivables as a fulfillment of the ill-defined requirement that they offer a “community benefit” in exchange for the tax exemption they receive under 501(c)(3). Senator Grassley has said that “Neither the IRS nor Congress has done a very good job when it comes to establishing the criteria for enjoying this tax status since the IRS scrapped charity care for its community benefit standard in 1969″ (New York Times, 2/13/09).”

He has a point. But unless the prospective timing provision for outsourcing only “bad debt” is coupled with a prohibition upon characterizing mere “uncollected receivables” and  payor “shortfalls” as “community benefit,” it is hard to see what effect this bad debt collections distinction will have–besides the expansion of in house hospital collection  departments. One hopes that the pointed questions Senator Grassley asked of the nation’s leading nonprofit hospitals in ‘05 will play a substantial role in the Senate effort to reform and redefine the obligations of tax exempt nonprofit hospitals now. I believe Mr. Grassley would well agree that a mere shift in the locus of collection activities will not constitute reform worth the name.

Perhaps some background is in order. As we posted here a little while back in “The IRS, Nonprofit Hospitals, and the Meaning of “Community Benefit,” the IRS recently published the results of a two year study of nonprofit hospitals functioning under 501(c)(3), a portion of the Internal Revenue Code which garners tax exemptions for those entities it harbors. For those of you who have not yet read our post on the topic, I’ve excerpted it here below (if you have already read the piece, you can scroll down to the paragraph before Grassley’s numbered questions for the concusion to this post). The excerpted post describes how uncompensated care, bad debt and “shortfalls” in payments from Medicare and even Private Insurers can, and often are, characterized as somehow providing a “community benefit” which justifies a tax exemption for nonprofit hospitals:

Under the strictures of 501(c)(3) nonprofits are confined to paying executives “reasonable compensation” and supplying “community benefit.” Unfortunately, neither of these terms are particularly well defined. In the study’s executive summary, the IRS puts it so:

“The community benefit standard is the legal standard for determining whether a nonprofit hospital is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code.”

“Observations. Both the community benefit and reasonable compensation standards have proved difficult for the IRS to administer. Both involve application of imprecise legal standards to complex, varied and evolving fact patterns.”

These limitations may be seen in the characterizations of “community benefit” available to the hospitals in the study. Bad debt and Medicare payment shortfalls may be construed as  “community benefit.” As the debt, the credit injury, and the collection calls all inure to the community member who received treatment but could not pay, one might question if the “community benefit” involved in a failure of collection practices might be distinguishable from the “community benefit” involved in intentional charitable care. In addition, there simply is no set criteria to determine the appropriate amounts to be charged as “community benefit.” The IRS study poses the following under the heading of

“Limitations: …although the IRS designated the general categories of activities that could be reported as community benefit for purposes of the study, determining what was treated as community benefit (for example, bad debt or Medicare shortfalls) and how to measure it (cost versus charges) was largely within the respondents’ discretion.

Which is to say that those being monitored (nonprofit hospitals) to gauge the amount of money spent– to justify their tax exempt  status– were free to characterize their contributions in the manner they thought best.

Medicare shortfalls: So… if a non-profit hospital has a fee schedule rate of $100 for a procedure, and Medicare has a reimburse rate of $80 for that procedure, if a “charge” rate of measurement is used then there has been a $20 “community benefit” if the federally designated tax exempt nonprofit hospital accepts as payment the federally designated and predetermined Medicare reimbursement amount. Significantly, 19% of the hospitals also claimed “shortfalls” in payment from private insurers as uncompensated care/community benefit (See Chart: “Figure 82,” p. 105, full report).

Cost vs. Charge: So… if a procedure has a cost to the hospital of $80 and a fee schedule [or "chargemaster"] rate of $100, and the recipient of the procedure does not pay and the hospital categorizes the non-payment as “bad debt,” it has the ability to count as “community benefit” not only the cost of its unintended largesse, but also the amount it had expected as profit.

Perhaps even more telling than this latitude in characterization are the amounts actually submitted to the IRS as community benefit. Here are a few of the findings:

• The average and median percentages of total revenues reported as spent on community benefit expenditures were 9% and 6%, respectively.
• Uncompensated care accounted for 56% of aggregate community benefit expenditures reported by the hospitals in the study.

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